The Leasehold Reform (Ground Rent) Bill is currently being considered by Parliament. If passed, what will it mean for your property? Emma Webster, Associate at Cambridge law firm Stone King LLP explains what landlords and tenants need to know.
How will the new Leasehold Reform (Ground Rent) Bill affect you?
“We can see that this bill has been introduced by the Law Commission to try to regulate the residential housing market by addressing concerns as to onerous ground rent clauses in leases becoming more frequent, to protect buyers and to make the residential housing market more accessible and affordable,” said Emma.
“Recently there has been a lot of discussion in the news around ground rents in residential leases where ground rents have been set so that they are frequently reviewed/ increased and, in some cases, leases have been drafted so that the ground rent doubles at frequent intervals.
“These ground rent clauses have led to some leasehold owners facing difficulties when looking to sell or re-mortgage their leasehold property. The bill has been introduced to protect leasehold owners from such market practices.
“If it becomes law and an act is introduced it will effectively limit ground rents that can be charged on new long residential leases of houses or flats to a peppercorn (which is in effect zero pounds).
“However, there are some exceptions to this and it is worth noting that the contents of the bill may change.
“The bill was introduced following the Law Commission’s review on enfranchisement law and is the first of two pieces of legislation which aim to reform the residential leasehold market.
“Enfranchisement is the procedure through which certain tenants may buy the freehold of their rented property or extend their leases.
“The bill seeks to restrict the ground rent that can be charged on new residential leases for a term of 21 years or more to a peppercorn, although there are some exceptions to this.
“The main exceptions are business leases, statutory lease extensions of houses and flats, community led housing and home finance plan leases (for instance a rent to buy arrangement).
“Different rules will also apply to shared ownership leases; the ground rent will be restricted to a peppercorn in relation to the tenant’s share of the house/flat but the landlord can charge any rent as to their share of the house/flat.
“If passed, the act will only apply to new leases so those granted after the legislation comes into force. “However, an existing lease which is subsequently varied (so that the term of the lease or the extent of the lease is changed) so that the lease by operation of law is treated as being surrendered and regranted may be regarded as a new lease.
“In respect of voluntary (non-statutory) lease extensions, the landlord can still charge a ground rent for the duration of the term of the existing lease as per the terms of the existing lease, but ground rent for the additional term would need to be a peppercorn.
“If the act comes into force, and a landlord grants a new lease which breaches the ground rent restrictions and does not fall within one of the exceptions, then this will be an offence, and the landlord may face a fine of up to £5,000.
“Additionally, tenants who unintentionally pay ground rent will be entitled to claim the rent back with interest.”
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